What is Return on Investment (ROI)?

ROI or Return on Investment, is expressed as a percentage and is typically used to determine a company's profitability or to compare the efficiency of different investments. The return on investment formula is: ROI = (Net Profit / Cost of Investment) x 100.

How do you calculate ROI?

The best mortgage conditions for R.O.I are with a downpayment of 20-25% (thus avoiding mortgage insurance costs) over a 25 year amortization.

Let’s take as a case scenario the typical purchase of a $250,000 (2 bedroom) condominium in St Henri.

A semi furnished 2 bedroom condo in St Henri can be rented out for an average of 1300/month.Net profit = rental income – carrying costs.In this case, this condo brings in a profit of $69 / month.The net income after all expenses will be positioned between break even and positive cash flow.

Now to consider the additional equity gained through appreciation over the years:

A conservative average of appreciation rate in Montreal is 2% per year.Value appreciation (assuming 2% on base price p.a non-compounding) = ($5000 x 5) = $25,000Over 5 years the market value of a $250,000 property will increase to $275,000.

After 5 years, the mortgage balance left to pay will be: $180,212Mortgage appreciation = initial mortgage – current mortgage = (200000-180,212) = $19,788

To secure a high ROI investment, the different points to look out for are:

a) Low asking pricesb) Favourable mortgage terms (high downpayment and low interest rates, if possible)c) Low condo fees and other carrying costsd) Properties in locations where the rental value is high and vacancy rate is lowe) Locations where the appreciation rate is high or growing

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